Sprint looks to quell investor concerns at meeting

GregBensinger

NEW YORK (MarketWatch) -- Sprint Nextel Corp.
S, +0.31%
faces a twofold challenge when it meets with investors on Friday: explain its plans regarding fourth-generation wireless service, and quell concerns about its relationships with Clearwire Corp.
CLWR
and Apple Inc.
AAPL, +0.65%

Sprint's meeting comes as the U.S.'s third-leading wireless carrier is trying to add contract customers, considered more valuable, and fend off a merger between rivals AT&T Inc.
T, +0.54%
and T-Mobile. The Overland Park, Kan., company also is under pressure to explain the costs involved with its new contract to offer the iPhone and its strategy to offer products that run off the faster 4G service, a key growth area for wireless carriers.

Bill White, a Sprint spokesman, declined to comment on what the carrier planned to say Friday.

The company's comments will provide further details about its key $5 billion network equipment upgrade called Network Vision that Sprint says will allow it to operate more efficiently and help to lower costs by about $10 billion over the next seven years. It also gives Sprint flexibility to host other carriers' airwaves on its equipment.

The network upgrade is designed, in part, to bring long-term stability to a carrier that has shed postpaid customers even as its rivals have boosted their customer rolls. Sprint has dropped the lucrative customers in all but one quarter during the last four years, including 215,000 in this year's first half.

Building out its own 4G network could also help Sprint draw new users looking for the fastest wireless downlaods. AT&T and Verizon Wireless are rolling out their own 4G networks on a global standard known as long-term evolution, whereas Sprint buys its 4G service wholesale from Clearwire, which offers a competing WiMAX 4G service that is less broadly available globally, limiting device selection and development. Sprint is locked into its Clearwire deal, worth at least $1 billion, through November 2013.

For its part, Clearwire will begin converting its service over to LTE 4G in some of the largest U.S. cities using its own network equipment, though Sprint Chief Executive Dan Hesse has said he has pursued a network-hosting arrangement with the Kirkland, Wash.-based carrier.

Sprint is likely to announce it is switching the push-to-talk network it gained from the 2005 merger with Nextel into an LTE 4G service over the next two to three years, said Oppenheimer & Co. analyst Tim Horan. "Over time, it makes sense for Sprint to move to LTE because that's the standard that handsets are going to be built for," said Horan. "They'll need LTE to compete with the largest carriers."

Another 4G option for Sprint may be in its 15-year contract with startup wireless network LightSquared, which is backed by billionaire hedge fund manager Phil Falcone. LightSquared, which hopes to offer commercial LTE 4G service in next year's second half, will share construction costs as part of Sprint's network upgrade and said it has pledged up to 50% of its capacity to Sprint. In return, Sprint will host LightSquared's airwaves on its upgraded network equipment.

Nonetheless, LightSquared is an uncertain 4G partner until it resolves concerns its network interferes with global-positioning systems. It needs to pass another round of testing before it is given regulatory approval to roll out a network to cover 260 million Americans by the end of 2015.

Meanwhile, Sprint's existing 3G network, which operates at slower speeds than 4G, may face the same overloading from iPhone customers that damaged AT&T's reputation in cities like San Francisco and New York. While it can attract more contract customers with its offer of unlimited data on the device, iPhone users are inclined to download more video and other data-hungry applications than users of other devices.

Sprint has committed to buying 30.5 million iPhones from Apple for about $20 million over four years, an expense that could ensure the carrier loses money until 2014, according to people familiar with the arrangements. Under a baseline scenario, the carrier expects the deal to cost it some $1.5 billion in operating profit over the next two and a half years, one of the people said.

To honor its commitment to Apple, the carrier, with about 33 million contract customers today, would have to convert 75% of its projected postpaid users to the iPhone by 2015, according to Bernstein Research analyst Craig Moffett. "Sprint would need to gain a great deal of market share from Verizon and AT&T at a time when Sprint will offer only one iPhone model," said Moffett.

The Sprint spokesman declined to discuss the carrier's arrangements with Apple.

"The one great thing about Network Vision is it gives us so much flexibility in terms of mixing and matching pieces over time, in terms of who we may want to partner with," Hesse said at a conference last month.

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